Restructure financing for interest deductible debt

[Angela Pham]

I recently closed on a 5+ multi-family, the bank would only finance 60% of the purchase price (DSCR loan) and I had to come up with the other 40% + closing cost - in the form of a HELOC secured with my primary home. We were scrambling to close as we were already 3 weeks past the original closing date.

I am now looking to restructure the financing to maximize the interest deductible of my debt (can't deduct interest from HELOC secured by primary home to buy rental properties). If I am able to get a new mortgage under my LLC (disregarded entity) to pay back the HELOC, would the interest paid under this new loan deductible? I read that it depends on what the funds of the new loan are used for and on paper it looks like an owner distribution, but I am not certain that I am thinking about this right.

I'll be reaching out to tax advisors but as I look for one, I wanted to pick y'all brains first. I was thinking about folks who do a cash out refi (sweat equity), how does that work on the interest deduction of the loan when tax season rolls around?